Thanks for all the gold-related advice everyone, especially Dr. Bubb! I've been locked into gold for a year and am now looking for other post-bubble opportunities.
About six months ago I came across a good article on buying shares of publicly-traded debt consolidation and collection companies. These all are trade on the NASDAQ. Although it's a generalization, the basic story on these companies is that they buy up non-mortgage debt then go after the debtors for the money. They should perform well in a consumer credit crunch. I wish I had bought then as you'll see from the charts. They generally have good P/E's and solid earnings.
I'm trying to figure out if a basket of these stocks would serve us well as housing tanks and the U.S. slips into recession.
Other than a potential US currency devaluation, I see the greatest risk in these stocks coming from the fact that if the US economy really turns down, then these companies won't be as successful in collecting bad debts. But that's just a guess.
I thought some of the more savvy investors here might be interested in letting us know what you think of the prospects for this sector.
Here are the trading symbols and 6-month charts:
AACC chart
ASFI chart
CCRT chart
ECPG chart
NCOG chart
PRAA chart
Thanks,
SB
Full Version: Debt Collection Companies
I agree that in hard times, credit card companies would be experiencing more 'almost bad' debt and selling it off to companies like this. I'm not sure how the hard times would affect the collection companies though - wouldn't they suffer a lower conversion rate due to people not having the money, or going to court to get a silly 50p a week repayment plan, or bankrupcy?
Fingers
Fingers
QUOTE(Fingers @ Sep 20 2005, 01:50 AM)
I'm not sure how the hard times would affect the collection companies though - wouldn't they suffer a lower conversion rate due to people not having the money, or going to court to get a silly 50p a week repayment plan, or bankrupcy?
Fingers
Fingers
That's exactly the conundrum Fingers, and I found the following article that mentions this - although it's from June 2004 and it talks about the impact of an improving economy:
QUOTE
Cashing in on debt collection
Debtors' pain is Valley's gain as industry booms locally
Russ Wiles
The Arizona Republic
Jun. 24, 2004 12:00 AM
Consumers' busted budgets have created boom times for collection firms.
As Americans struggle to pay off a mountain of non-mortgage debt that now exceeds $2 trillion, more independent companies are buying up portfolios of unpaid auto, credit card and other loans, then hiring armies of phone reps to collect what they can.
The Valley has become a base for this growing industry, with several hundred firms operating here, including four of the industry's 10 top players.
"We've made a key commitment to Phoenix because we feel it's a terrific place to expand," said Andrew Zaro, president and chief executive officer of Cavalry Portfolio Services LLC, a top-10 collection firm that employs about 225 people at an office near Sky Harbor International Airport. The company plans to nearly double its number of employees over the next two years.
"There are a lot of servicing and collection companies here and a large employee base of skilled labor," he said.
The trend has meant attractive livelihoods for people like John Yacoub, 22, a former airline baggage handler from Chicago who joined Cavalry's Phoenix office less than three years ago. He places 150 to 200 calls to debtors in a typical day, juggling about 100 accounts at a time.
Yacoub, who earns a base salary and commissions on accounts on which he collects money, expects to earn close to six figures this year. Before joining Cavalry, he had never worked as a collector.
"Some people get defensive, but we try to move past that and help them pay their bills and clear their credit," he said. "We try to find out what the problem really is and work around those lines."
Job losses and serious health problems account for a large number of delinquencies, industry statistics show.
Debt collectors' image and past shoddy practices have led to tight regulation of the business. Several federal and state laws have been passed, including the Fair Debt Collection Practices Act.
The collection industry accounts for the fourth-highest tally of consumer complaints received so far this year by the Arizona Attorney General's Office.
"Some people complain they've paid off a credit card but still get calls from debt collectors," said Andrea Esquer, a spokeswoman for the agency. "Others complain they've been reported to collectors after missing a payment by only a couple days."
More problems involve outdated or inaccurate account information than bullying or harassment, Esquer said.
Despite their image, collectors play a key economic role by helping businesses stay afloat. Companies that are unable to collect their receivables often pass the losses along to other customers in the form of higher prices. In some cases, they may have to lay off staff.
"There is no such thing as an unpaid bill," notes ACA International, a Minneapolis-based trade group for collection professionals.
The types of debts on which collectors work range from credit cards and auto loans to unpaid health-club memberships and telephone bills.
The industry is highly fragmented, with more than 6,500 agencies employing an average of 13 collectors each.
Many agencies buy bad debts at deep discounts from banks, retailers, auto financiers and others, then recover what they can.
For example, Encore Capital Group Inc. - which, with about 500 workers at its Midland Credit Management unit, has one of the largest operations in Phoenix - seeks to recoup 85 percent of what it pays for delinquent IOUs in 12 months. It aims to earn 2.7 times what it pays within 54 months.
Encore and Hawthorne, N.Y.-based Cavalry rank among the top collection agencies buying bad debts, reports Collections & Credit Risk magazine. Asset Acceptance Capital Corp. and OSI Portfolio Services are two other top-10 players operating here.
A few agencies are publicly held firms. This list includes Encore, Asset Acceptance, Asta Funding Inc. and Portfolio Recovery Associates Inc.
Many banks, retailers, utilities and other finance firms have their own in-house collection staffs, yet many of these entities eventually will unload severely delinquent accounts to third-party specialists.
"Companies have to write off their receivables after a certain number of days, typically 180," said Alfred Brothers, a Cavalry executive vice president who runs the firm's Phoenix operation. "After their collection efforts have been exhausted, the loans are marketed for sale."
This trend of charging off and then selling bad loans to collection agencies is another factor that has boosted the industry, as more delinquencies mean more opportunities for specialists to collect. About 8 percent of consumer IOUs fall into the delinquent category.
It's not yet clear whether the improving economy will curb the collection industry. On one hand, better times could help cash-strapped consumers get a handle on their finances. On the other, stronger economic growth will mean higher interest rates, which could push some debtors over the edge.
"I believe that the more than $2 trillion of outstanding consumer debt is vulnerable to any increase in interest rates or other shock factors," wrote Steve Fredrickson, chairman and CEO of Portfolio Recovery Associates, in a recent report.
"Such an event could create an unprecedented amount of (delinquent) paper available for purchase."
Debtors' pain is Valley's gain as industry booms locally
Russ Wiles
The Arizona Republic
Jun. 24, 2004 12:00 AM
Consumers' busted budgets have created boom times for collection firms.
As Americans struggle to pay off a mountain of non-mortgage debt that now exceeds $2 trillion, more independent companies are buying up portfolios of unpaid auto, credit card and other loans, then hiring armies of phone reps to collect what they can.
The Valley has become a base for this growing industry, with several hundred firms operating here, including four of the industry's 10 top players.
"We've made a key commitment to Phoenix because we feel it's a terrific place to expand," said Andrew Zaro, president and chief executive officer of Cavalry Portfolio Services LLC, a top-10 collection firm that employs about 225 people at an office near Sky Harbor International Airport. The company plans to nearly double its number of employees over the next two years.
"There are a lot of servicing and collection companies here and a large employee base of skilled labor," he said.
The trend has meant attractive livelihoods for people like John Yacoub, 22, a former airline baggage handler from Chicago who joined Cavalry's Phoenix office less than three years ago. He places 150 to 200 calls to debtors in a typical day, juggling about 100 accounts at a time.
Yacoub, who earns a base salary and commissions on accounts on which he collects money, expects to earn close to six figures this year. Before joining Cavalry, he had never worked as a collector.
"Some people get defensive, but we try to move past that and help them pay their bills and clear their credit," he said. "We try to find out what the problem really is and work around those lines."
Job losses and serious health problems account for a large number of delinquencies, industry statistics show.
Debt collectors' image and past shoddy practices have led to tight regulation of the business. Several federal and state laws have been passed, including the Fair Debt Collection Practices Act.
The collection industry accounts for the fourth-highest tally of consumer complaints received so far this year by the Arizona Attorney General's Office.
"Some people complain they've paid off a credit card but still get calls from debt collectors," said Andrea Esquer, a spokeswoman for the agency. "Others complain they've been reported to collectors after missing a payment by only a couple days."
More problems involve outdated or inaccurate account information than bullying or harassment, Esquer said.
Despite their image, collectors play a key economic role by helping businesses stay afloat. Companies that are unable to collect their receivables often pass the losses along to other customers in the form of higher prices. In some cases, they may have to lay off staff.
"There is no such thing as an unpaid bill," notes ACA International, a Minneapolis-based trade group for collection professionals.
The types of debts on which collectors work range from credit cards and auto loans to unpaid health-club memberships and telephone bills.
The industry is highly fragmented, with more than 6,500 agencies employing an average of 13 collectors each.
Many agencies buy bad debts at deep discounts from banks, retailers, auto financiers and others, then recover what they can.
For example, Encore Capital Group Inc. - which, with about 500 workers at its Midland Credit Management unit, has one of the largest operations in Phoenix - seeks to recoup 85 percent of what it pays for delinquent IOUs in 12 months. It aims to earn 2.7 times what it pays within 54 months.
Encore and Hawthorne, N.Y.-based Cavalry rank among the top collection agencies buying bad debts, reports Collections & Credit Risk magazine. Asset Acceptance Capital Corp. and OSI Portfolio Services are two other top-10 players operating here.
A few agencies are publicly held firms. This list includes Encore, Asset Acceptance, Asta Funding Inc. and Portfolio Recovery Associates Inc.
Many banks, retailers, utilities and other finance firms have their own in-house collection staffs, yet many of these entities eventually will unload severely delinquent accounts to third-party specialists.
"Companies have to write off their receivables after a certain number of days, typically 180," said Alfred Brothers, a Cavalry executive vice president who runs the firm's Phoenix operation. "After their collection efforts have been exhausted, the loans are marketed for sale."
This trend of charging off and then selling bad loans to collection agencies is another factor that has boosted the industry, as more delinquencies mean more opportunities for specialists to collect. About 8 percent of consumer IOUs fall into the delinquent category.
It's not yet clear whether the improving economy will curb the collection industry. On one hand, better times could help cash-strapped consumers get a handle on their finances. On the other, stronger economic growth will mean higher interest rates, which could push some debtors over the edge.
"I believe that the more than $2 trillion of outstanding consumer debt is vulnerable to any increase in interest rates or other shock factors," wrote Steve Fredrickson, chairman and CEO of Portfolio Recovery Associates, in a recent report.
"Such an event could create an unprecedented amount of (delinquent) paper available for purchase."
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